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How Does Tiong Woon Corporation Holding's (SGX:BQM) P/E Compare To Its Industry, After The Share Price Drop?

Simply Wall St

Unfortunately for some shareholders, the Tiong Woon Corporation Holding (SGX:BQM) share price has dived 32% in the last thirty days. Looking back over the last year, the stock has been a solid performer, with a gain of 30%.

All else being equal, a share price drop should make a stock more attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

View our latest analysis for Tiong Woon Corporation Holding

Does Tiong Woon Corporation Holding Have A Relatively High Or Low P/E For Its Industry?

We can tell from its P/E ratio of 8.27 that sentiment around Tiong Woon Corporation Holding isn't particularly high. The image below shows that Tiong Woon Corporation Holding has a lower P/E than the average (11.3) P/E for companies in the commercial services industry.

SGX:BQM Price Estimation Relative to Market, March 18th 2020

This suggests that market participants think Tiong Woon Corporation Holding will underperform other companies in its industry. Many investors like to buy stocks when the market is pessimistic about their prospects. You should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. And in that case, the P/E ratio itself will drop rather quickly. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.

Tiong Woon Corporation Holding's 128% EPS improvement over the last year was like bamboo growth after rain; rapid and impressive. Unfortunately, earnings per share are down 9.2% a year, over 5 years.

Remember: P/E Ratios Don't Consider The Balance Sheet

The 'Price' in P/E reflects the market capitalization of the company. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.

Is Debt Impacting Tiong Woon Corporation Holding's P/E?

Tiong Woon Corporation Holding's net debt equates to 37% of its market capitalization. While that's enough to warrant consideration, it doesn't really concern us.

The Bottom Line On Tiong Woon Corporation Holding's P/E Ratio

Tiong Woon Corporation Holding's P/E is 8.3 which is below average (10.4) in the SG market. The company hasn't stretched its balance sheet, and earnings growth was good last year. If it continues to grow, then the current low P/E may prove to be unjustified. What can be absolutely certain is that the market has become more pessimistic about Tiong Woon Corporation Holding over the last month, with the P/E ratio falling from 12.2 back then to 8.3 today. For those who prefer invest in growth, this stock apparently offers limited promise, but the deep value investors may find the pessimism around this stock enticing.

Investors should be looking to buy stocks that the market is wrong about. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. We don't have analyst forecasts, but shareholders might want to examine this detailed historical graph of earnings, revenue and cash flow.

You might be able to find a better buy than Tiong Woon Corporation Holding. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.